Tom Gruenthumb, an enthusiastic gardener, has been growing his own vegetables for years.
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Tom Gruenthumb, an enthusiastic gardener, has been growing his own vegetables for years. Heplants from seeds, fertilizes and grows many, many vegetables—everything from avocados totomatoes to zucchini. He spends about $300 on fertilizer and supplies per year and has builtsome greenhouses that cost him $5,000 last year. His family enjoys the fruits of his labors eventhough they are not vegetarians.Since his harvests are bountiful, he also gives his produce to the local church who helps feed thehomeless. Last year alone, he gave about 100 pounds of assorted vegetables to the church.Since he still had plenty of harvest last year, he decided to sell some of his produce at the localfarmers market.His neighbor, Brien Downs, who is a CPA, saw him at the farmers market and asked him how hereports his earnings from his produce to the IRS. So, he has come to you for advice.First, does his harvest for his family equate to an increase in wealth and therefore, taxable?Why?Second, does Tom get a charitable contribution deduction for the 100 pounds of produce given tothe local church, a 501(c)(3) organization? What is the value of the contribution?Finally, how does he report his income from the farmers market? He took in about $3,000 insales. What is his cost of sales? Are there any issues in reporting his income?